Ross Company produces a single product. The company has direct materials costs of $8 per unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty percent of the manufacturing overhead is for fixed costs. In addition, variable selling and administrative costs are $2 per unit, and fixed selling and administrative costs are $3 per unit at the current activity level. Assume that direct labor is a variable cost.
-Under absorption costing, the unit product cost is:
A) $24
B) $20
C) $26
D) $29

Question

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (direct materials, direct labor, and manufacturing overhead) are included in the unit product cost. The total cost per unit can be calculated as follows:

Total cost per unit = Direct materials + Direct labor + Manufacturing overhead
Total cost per unit = $8 + $6 + $10 = $24

Variable selling and administrative costs ($2 per unit) are not included in the unit product cost under absorption costing but are expensed in the period incurred. Fixed selling and administrative costs are included in the unit product cost under absorption costing, but their allocation is based on the volume of units produced.

Ross Company Produces a Single Product